Contractors’ Questions: What if I’m still unpaid a year later?
Contractor’s Question: Payment for some system design work I did for a client back in November 2016 is still outstanding, despite various messages from them at the time saying the total cost of £1,400 would be paid with no quibbles.
In April this year, they told me via text that they have had a bad winter, financially-speaking, but have not forgotten about paying me. After more chasing they have now started to ignore my calls, so I'm unsure what to do now. Are letters, charges under the late payment law or a debt collection agency my next step? I don’t fancy paying the latter if they’re not successful.
Expert’s Answer: Sadly this is a situation we hear all too often. It is a difficult position to be put in, and it is unreasonable of your client to act in this way. Even if their financial difficulties are genuine, all they are doing is passing their problems down the line. They committed to the work you did for them; they agreed the fee and one way or another they have a legal responsibility to pay.
The important thing is not to panic. Like we said, it happens to suppliers all the time. It is an unpleasant scenario, but the law is on your side, and by taking the appropriate steps, the likelihood is you will be able to recover the money you are owed.
We would always recommend putting communications regarding late payments in writing, either by email or letter. Letters tend to carry more gravitas, so if you have already tried by email without any success, a letter is indeed a good next step.
Suppliers can find it hard composing letters making demands for money they are owed. But don’t be shy -- this is money you are entitled to. If you have already made requests that have been ignored, you can afford to word your letter quite strongly. We usually recommend three stages of written requests for late payments -- first reminder, second reminder, then final demand. The final demand is essentially your last attempt to secure payment without taking further action, and the recipient should be in no doubt as to your intentions.
Remember, the law is on your side, and it helps in the letters to quote the relevant pieces of legislation to remind your client that they are breaking the law by not paying you. If you need some help drafting a letter, there are some useful ‘late payment’ templates you can use here.
However, if you cannot secure payment yourself, a professional debt collection agency really is your next best option. Choose a reputable, well-established company with a good track record. Look for an agency that is recommended by industry groups, and read up on client reviews before you make a decision. A good, established firm will not expect any payment up front, and will add no hidden charges. Payment will be conditional on them recovering the debt, and their fee may be added to what they recover.
A reminder though. As soon as a payment becomes late, it accrues interest, which should be added incrementally to the amount outstanding until it is paid. The same laws which entitle you to charge interest on an unpaid late invoice also set out fixed costs you can charge by way of compensation for having to chase the debt.
In addition, since 2013 debtors have also been entitled to add a claim for “reasonable costs” incurred during the recovery process. This is to cover things like debt collector’s fees. Unlike the fixed costs element, it is not set in stone what you can bill for or what you can charge, so it is not guaranteed that you will get all of your recovery costs back. Good luck!
The expert was Adam Home of debt recovery specialists Safe Collections.